This video introduces the concept of returns to scale, which is needed in order to understand how production processes behave in the long run. Also, it shows what the elasticity of returns of scale is, and how to use it.
When dealing with long run production, the main change from short run production is that we can vary the levels of fixed inputs we use (capital, K), as well as variable inputs (labour, L). Our levels of production will be determined by our returns to scale.
Production in the long run will determine the average size of a business in the sector. Positive returns to scale, the most common scenario, will naturally attract a concentration of very large businesses, as is often the case in industrial, capital intensive sectors. Getting it right is crucial for another reason: in the long term, market equilibrium will determine that the total production of a certain good will be such to eliminate economic profits.
Learn more by reading the dictionary entry.